Motorola iTunes phone faces uphill battle against MS media juggernaut

Reuters has a story this morning about how the GSM/GPRS-based wireless carrier Cingular is considering the addition of Motorola's iTunes-compatible phone to its lineup. Apparently, the decision hasn't been made yet.

Reuters has a story this morning about how the GSM/GPRS-based wireless carrier Cingular is considering the addition of Motorola's iTunes-compatible phone to its lineup. Apparently, the decision hasn't been made yet. The difference between an iTunes phone and other phones that can play MP3 files is that an iTunes phone would be able to purchase music from Apple's iTunes store (over the air). By virtue of its support for Apple's FairPlay digital rights management (DRM) scheme, and iTunes phone would also be able to play the purchased music i in the same way that Apple's iTunes software for Mac and Windows currently does.

But what's even more interesting is how, deeper into the story, the author explains why most mobile operators are reluctant to add iTunes-compatible phones in the first place. Though the author doesn't make the connection -- I will: this is another reason that Microsoft's media juggernaut is the odds on favorite to take the media (both mobile and stationary) and DRM technology markets by storm. The author makes five important points (they appear in the original story in a different order):

Most U.S. operators have expressed interest in expanding the music services they deliver to mobile phones beyond the musical ringtones... however

.....Motorola has delayed unveiling its iTunes device so far amid analyst speculation about a lack of interest [in that device] from operators....and one reason is...

..Network operators have questioned whether such devices, which could require steep subsidies, will boost their revenue as consumers could transfer songs to their phone via their computer rather than the network...so....

...Apple and Cingular were working out final details on revenue sharing....meanwhile...

Verizon Wireless, a venture of Verizon and Vodafone, has said it plans to launch a music download service that competes with Apple's iTunes.

So, let's add this up. Mobile operators are interested in getting music to their service subscribers but the business has to make sense from a revenue point of view. That means that Apple, which still sells music for 99 cents per song will have to divvy up the profits from that revenue with the mobile operator for each song purchased with an iTunes phone. Whether or not there's enough money after the pot gets divided is a question mark that doesn't help to justify an idea that may already require someone -- the operator, Apple, or both -- to eat the chicken & egg cost of launching by way of subsidization. As more music stores come online, some with offers that are more attractive to consumers than Apple's 99 cent deal, Apple may have to drop the price to maintain iTune's market viability. If Apple is forced to cut the price of music, the subsidization costs are at risk of going up before going down. It's no secret that the margins in the online music business are already razor thin.

Meanwhile, rather than split its pot with Apple, Verizon Wireless sees a better approach: opening its own online music store. Recognizing that mobile operators are a terrific channel through which to sell music, what record label wouldn't be willing to cut a deal? Not coincidentally, Microsoft makes it relatively simple for mobile operators to run their own music stores. It has the platform for attaching the sort of DRM that record labels want attached to their music and it makes the playback and matching DRM technology that goes into the phones. Microsoft has a logo program (PlaysForSure) that assures music lovers of the compatibility between their handsets and the music stores. What's the likelihood that Verizon Wireless' music store will be a PlaysForSure-based service? Bear in mind that Verizon Wireless already resells several Windows Mobile-based handsets.

All this said, one reason to partner with an existing online store like Apple's iTunes is that the mobile operators wouldn't have the headaches of running such a service. But if I had to guess, Microsoft is going to make it so simple to run an online music store that it will be a very difficult for any outfit with a channel (a channel like the mobile operators have) to resist.

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